Wednesday, April 09, 2008

Merchant Cash Advances - Inc Mag Not a Big Fan

Merchant cash advances. Inc. Magazine in its April 2008 edition calls it the business equivalent of a payday loan for small businesses who need money fast and have no other options. The magazine reports that there are over 50 merchant cash advance providers providing small businesses about $700 million a year.

It's one of the fastest growing sources of small business loans as evidenced by the announcement today by AdvanceMe, a wholly owned subsidiary of Capital Access Network, that it has just closed on a $140 million borrowing facility with several sources including Brown Brothers Harriman, Wells Fargo Foothill and Fifth Third Bank. This money will be used to fund AdvanceMe's growth.

The article makes clear that Inc. Magazine (or at least the author) is not a big fan of merchant cash advances.

Here are three reasons cited as to why not.

It's very expensive. In my own discussions with merchant cash advance providers, I calculated an effective rate of interest starting at 35 percent per year.

Some providers will advance as much money as possible, regardless of the borrower's ability to repay the loan.

Finally, according to one industry insider, the word "unscrupulous" comes up a lot in the business. You wouldn't believe the number of spam comments I get on this website from merchant cash advance providers.

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About Me

Marshall Lebovits has over 25 years of experience in the secured financing industry. Marshall advises on a wide variety of asset based funding solutions for businesses throughout the USA. If your business has receivables, inventory or equipment and needs over $50 thousand of financing, please contact me at 310-344-2522.